December 09, 2000

Each of the Yankee Group's research groups has taken stock of its predictions for 2000, assessed its accuracy, and forecasted their trends for 2001. The Yankee Group's leading industry experts address the areas crucial to e-business success for 2001, predicting the market trends for the communications, networking, wireless and Internet, energy, and media and entertainment markets. Several key predictions in our many market focus sectors include:

Customer care and billing market space will abound with merger and acquisition activity. With the stock valuations of many public companies (i.e. Portal, Daleen, etc.) having suffered, and other companies emerging as stronger worldwide players (i.e. Geneva), these companies could be now considered prime targets for acquisition. In addition, larger companies like Nortel Networks, and Cisco Systems may be looking to acquire some of the players in the billing space to complete or add to their end-to-end solution offerings, making them a one-stop shop for both hardware and software.

Deployments of wireless Internet solutions will finally take hold, and rapidly growing service firms will make major commitments in this area. Because wireless technological innovation is mostly located in Europe, expect to see many more acquisitions of European wireless service firms by North American companies that are trying to quickly develop wireless capabilities for the coming wireless wave. Because selling a wireless solution is difficult, service vendors will have to provide extensive consulting so that users can understand the opportunities in wireless. As a result, we expect strong growth in consulting.

Emergence of carrier-scale storage solutions is imminent, and they will become available over the next 12 months. These solutions will be highly scalable, easy to manage products that meet or exceed current performance measures, and will be adopted first by storage service providers.

Ethernet won the technology makeover of the year award in 2000 and will live up to the hype in 2001 with the first 10 gigabit interfaces shipping. By the end of the year, all of the major carrier focused Ethernet switch and router vendors will announce that they will adopt the IEEE 802.17 standard for Resilient Packet Rings.

Merger and acquisition game of long distance carriers in 2001 will see a rise with major internal changes taking place in many of the IXCs, as well as the recent volatility of their stock prices. A portion of one of these major players will end up being the target of a takeover. Whether a major international carrier or a next-generation IXC makes the move, no one should be surprised to see a significant change in the make-up of the major telecommunications service provider market. And even if the IXCs are not the target of a merger or acquisition, they themselves are very likely to make a serious play for some of the struggling CLECs and the new technology and local footprint they offer.

Online content syndication provider market extends to corporate enterprises. As the consumer portals scramble for profits, players in the content syndication and aggregation arena emerge to help make doing business in the content market cost effective and (eventually) profitable. As business intelligence quickly becomes an online content management issue for enterprises, consumer focused online content syndication solutions providers such as iSyndicate and ScreamingMedia will expand their capabilities to include developing content management solutions for corporations.

Outside of the top mass-market online retailers, a number of Internet-only retailers are quietly and effectively building successful small businesses on the Internet in markets that include specialty home goods, high-margin fragrances, and niche market apparel. Because these small Internet-only online retailers are privately held, they are insulated from the growth expectations of investors in the public market.

Satellite broadband services such as Direct PC, StarBand, and WildBlue will have approximately 1 million subscribers in the United States, by year-end 2001. Rural America offers a vast -- and largely untapped -- market for high-speed access to the Internet. According to the U.S. Census Bureau, approximately 30% of U.S. homes are in rural counties. Yet telcos and cable operators continue to concentrate on first- and second-tier markets. Deploying cable modems and DSL to a few widely dispersed homes is technically and financially impractical, especially for the smaller operators and local exchange carriers (LECs) that serve rural markets. Satellite operators, however, already cover over 90% of homes in the United States. Thus, they are best situated from a technology, as well as a business, standpoint to bring broadband access to the rural markets.

Scale and scope of wireless usage will continue to expand, and wireless data will be driven primarily by adoption of messaging applications, particularly for enterprise customers. Although the Yankee Group expects 9.4 million wireless data users (including SMS) by the end of 2001, over 50% of them will use their data service almost exclusively for messaging applications such as email, SMS or instant messaging.

Wholesale of metropolitan fiber networks into U.S. Tier 2 and 3 cities will witness extensive construction in 2001. With their ability to fund capital expenses, utilities are presented a ripe opportunity to ride the wave of the metro carriers' carrier trend.

2.5G and 3G network deployments will be delayed based on the bottlenecks at getting enough commercial wireless terminals to support market deployments, and operators will experience significant problems working out the kinks.

Internet users will continue to grow unabated in Asia-Pacific markets, although rates of growth will vary from country to country. In the larger countries like India and China, where there is a staggeringly large addressable population, the number of Internet users will continue to grow at a frenetic pace.

Mobile Subscriber Growth after a decade of exponential expansion of mobile services, the Asia-Pacific market will show signs of a slowdown in 2001. Total cellular subscribers in the region will increase by 5% to 275 million by the end of 2001, compared to an estimated 50% growth rate in 2000. Reaching a penetration level of 70%, there will be little if any upward potential for Hong Kong and Taiwan.

VoIP: Building value proposition as telecom operators in Asia-Pacific head down the convergent path, the inclusion of VoIP will become a key differentiator for operators to ensure long-term sustainability by creating added value. VoIP veterans are expected to play an enormous part due to their sense of market needs. Among the major applications, we expect that IP fax, Web-based call centers, and unified messaging will take the early lead and find mainstream popularity in the business world.

For more information at http://www.yankeegroup.com .

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